A couple of years ago, the World Economic Forum estimated that by 2020 the amount of digital data globally would be 44 zettabytes – that’s 40 times more bytes than the number of stars in the observable universe. International Data Corporation (IDC) has predicted that by 2025 the datasphere will almost quadruple, growing to an immense 175 zettabytes.
The challenge is how to harness this wealth of information. In the finance space, tax analytics has emerged as one method of using historical business data to unlock future opportunities.
What is tax analytics?
“Tax analytics involves using the granular enterprise data a business already holds to make more holistic enterprise decisions and add value, rather than just providing a retrospective view,” explains Andy Hung, Segments Director, CCH Integrator, Tax and Accounting, Asia Pacific, at Wolters Kluwer.
“It’s a shift from the traditional tax function, which is mostly focused on how much tax a company needs to pay. It’s a change in mindset for tax professionals from what they need to know, to becoming a strategic partner to the business.”
Says Kim Olsen CA, Wolters Kluwer’s Head of Product, Enterprise Software, Tax and Accounting, Asia Pacific: “This is a positive shift for tax professionals because they can do more with the data they have. They can leverage their analytical skills and their deep knowledge of regulatory requirements, so it plays into the natural mindset of a tax professional.”
From reactive to proactive insights
Once your tax data is on a platform such as CCH Integrator, tax teams and advisers can interrogate the data for trends, model tax scenarios, project the impact of different business decisions on a future tax position, and provide insights into commercial levers for a business. The information can be viewed and presented using business intelligence and visualisation tools such as Microsoft Power BI and Qlik.
“Without the tools and technology software we have today, a team of people looking at data at this level of detail would take months,” Olsen says.
“Tax analytics allows you to look across datasets to spot the outliers: the anomalies and opportunities. It’s also a better demonstration of good governance and risk management. It shows your control over the data.
“For example, accounts payable and receivable make decisions regarding tax. With tax analytics, you can confirm they are making the right decisions, and proactively find and fix anomalies.”
Adds Hung: “Tax professionals are the custodians of all that data and CFOs look to the tax team to be a business partner. They look to them to be sharp and insightful, to add value beyond just doing the job.”
Tax analytics informs strategy
“If I had to summarise in one word what tax analytics can help you uncover, it would be ‘efficiency’,” Hung says. “Looking at the operations, revenue and costs in terms of tax efficiency can show you how to run a business better. You can find out your ROI [return on investment] drivers on a particular portfolio or transaction type, and you can make more profitable decisions.”
Olsen saw this herself when she worked in mergers and acquisitions. “We often used to model acquisitions – examining the trends of the business we were acquiring, and calculating the implications for the overall tax position. We didn’t have today’s tools, so we used to manually make our calculations in Excel.
“The same is true of supply chains and transfer pricing,” she adds. “You can use analytics to calculate the environmental impacts, or the inefficiencies of operating across borders, and find out if and where you have tax leakage or risks.”
Multinationals and businesses looking to expand overseas can also use analytics to monitor in which tax jurisdictions they operate most profitably, to inform decisions to mitigate tax risks, or choose where and when to expand.
Others might model the impact of a tax legislation change, such as New Zealand’s 2020 reversal of its 2011 depreciable asset legislation regarding corporate real estate, or India’s changes to corporate capital gains tax on the indirect transfer of Indian assets.
Ahead of the game
Tax authorities worldwide have made no secret about their intentions to ramp up digital transformation to improve compliance and track tax almost in real time. Tax authorities such as the Australian Taxation Office and New Zealand Inland Revenue have already announced the industries and expenses they intend to target. Actively monitoring and managing the company’s tax position can help reduce those ‘please explain’ conversations with the tax office.
“Tax authorities may say they want to get data directly from ERP systems, but we all know that lots of work goes into translating ERP system data into a tax position,” says Olsen.
“However, in the future, the tax authorities may be able to send a pre-completed corporate tax return. At that point, you’ll want to know ahead of time what the tax authority thinks your tax position is. It is easier to stay in front of where the tax authority thinks you’re going to be – even for PAYG payments.”
Adds Hung: “You can spend months after lodging a tax return answering the tax authority’s questions. If you have done your tax analytics, you will be able to tell a story to explain how you’ve proactively managed your tax. You can, to a certain extent, pre-empt the tax authority’s questions so, again, it improves efficiency. The more you know, the better prepared you’re going to be.”
Picture: Andy Hung, Wolters Kluwer.
“You can spend months after lodging a tax return answering the tax authority’s questions.”
The benefits of tax analytics
To do tax analytics well, the finance team needs to move away from multiple spreadsheets and disparate ‘sources of truth’ to shared, online management and storage of their tax data and embedding a BI solution into the process to analyse the data.
This lets tax professionals interrogate the same dataset, knowing the data is accurate and up to date. Yet while the advantages for companies with tax teams in different locations or countries is clear, tax analytics isn’t a tool only for large multinationals.
“Multinationals can definitely benefit from using tax analytics, but it’s also really good for mature businesses looking for new opportunities for growth,” Olsen says. “In fact, everyone can benefit but some have deeper pockets, so I would advise businesses to see what’s available at their price point.”
Kim Olsen CA, Wolters Kluwer.
“Multinationals can definitely benefit from using tax analytics, but it’s also really good for mature businesses looking for new opportunities for growth.”
Accounting and professional services firms may already use tax platforms to manage and file tax returns. For them, tax analytics could be a way to differentiate themselves and provide another value-add service that moves client conversations from purely transactional to strategic.
“What does your business value? If you look at your KPIs and metrics and you value efficiency, there’s a business case for tax analytics,” says Hung. “You might need to find out how to use limited resources in smarter ways. Big or small, data analysis is valuable and does provide high ROI.”
Five questions to ask before you invest in new tax technology
Wolters Kluwer has put together a comprehensive guide to asking the right questions when buying corporate tax technology software.
In the guide, you will learn the importance of a tax software solution that:
- fully integrates the tax provision and tax return
- produces a full tax balance sheet
- automatically produces your tax provision
- configures easily to meet your organisation’s changing needs
- provides timely, effective customer support after implementation.
Visit the Wolters Kluwer website to download your copy in Australia or New Zealand.